Sunday, May 21, 2006

Which Credit Cards are Best?

Last year, I did a review of the credit cards we were carrying and after some analysis I decided to change all of the cards we were using. I thought what I learned might be interesting to others so here's a summary of what I found.

Previously, we were primarily using an American Airlines Citibank MasterCard which carries a $55 annual fee and offers 1 American frequent flyer mile per dollar spent. American was our airline of choice and miles were always useful since we were traveling quite a bit. Increasingly, however, we found it difficult to utilize the miles we'd accrued. Flights are just never available, even with a lot of advanced notice and nowhere near holidays. I used to think an airline mile was worth 1 cent to me, but I think they are worth less now. We've got tens of thousands of miles on a bunch of airlines and last time I tried, I couldn't use the miles on any of the airlines! We also had an American Express Golf Card and a Discover Card that were seldom used.

To improve this situation, I did an analysis of our spending patterns for the 6 months prior. I created a spreadsheet that categorized each of our purchases into the buckets that credit card companies offer varied percentages back for: "gas/groceries/drug store", "dining out", "travel" and "other".

Some of the credit cards have very complex cash back schemes. If they were too complicated, I tossed them out figuring they were trying to bamboozle me with complexity hoping I wouldn't be able to figure out how weak their offerings were. I also knocked out any cards that charged an annual fee, and any card that offered anything other than cash back. It is possible that cards offering things other than cash back are good deals, but I really don't want to be obligated to spend my money in a particular way and I like the liquidity that cash offers.

After completing this analysis, I determined we were leaving about $1,000 per year on the table with our present cards as compared to what we could be getting with our new cards. Here are the new cards we use:

1. "American Express Blue Cash"
-5% cash back on gas/groceries/drug store
-1.5% cash back on all purchases
-Cash back is offered on first $50,000 spent per year
-AmEx not accepted everywhere
-All spending less than $6,500 annually is only 0.5%/1.0% cash back
-Cash back is credited to your account at your card anniversary date

2. "Chase Cash Plus Rewards Visa"
-5% cash back on gas/groceries/drug store
-1% cash back on all other purchases
-Visa/MasterCard readily accepted
-I don't see this card offered anymore (too good a deal?)
-30,000 "point" limit annually
-There's a very similar card from CitiBank called the "Citi Dividend Platinum Select Card". The specs on the Citi card are identical to the Chase card, but I've had bad experiences with CitiBank soliciting me frequently and I've had pretty good luck with Chase in the past
-Cash back comes in the form of checks in $50 increments and can be requested the month they're earned

Other card to consider:
-TrueEarnings Card from Costco/American Express
-3% back for dining out, 2% back for travel expenses, 1% for everything else
-It's the next card I'd consider, but I already have 1 AmEx and the complexity associated with using a special card for dining out/travel could be annoying. Further, I find getting a card rejected by a server at a restaurant to be annoying sometimes.

Card to be avoided:
-Any green/gold/platinum/black American Express Card that charges a fee. I like AmEx customer service and I've occasionally heard stories that make carrying an AmEx seem like a good idea. But I just cannot justify paying the significant annual fees these cards charge.

Do you have other suggestions for credit cards to check out or avoid? Please post a comment if you do.

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